The machine is anyway stopped to perform an upgrade, and so the need to start the machine seems superfluous (#1399).

Upgrading the host updates .docker/machine/cache/boot2docker.iso. Any previously created machines cache the boot2docker.iso in .docker/machine/machines/<MACHINE-NAME> and so they’ll continue to boot using the same version.

This error messages shows a version mismatch between the client CLI and the Docker Host running in the machine. The will typically happen if the active machine was created a few days ago using an older boot2docker.iso. There seems to be no way straight forward way to find out the exact version currently being used (#1398).

There seems to be no way for a new client to talk to the old server (#14077), and thus the host needs to be upgraded. There is a proposal to override the API version of client (#11486), but at this time there is no ETA for the fix. So the only option is to upgrade the docker machine, which will then then upgrade to the latest version of Docker.

There are breaking changes from Compose 1.2 and so you either need to remove and recreate your containers, or migrate them.Fortunately docker-compose migrate-to-labels can be used to migrate pre-Compose 1.3.0 containers to the latest format. This will recreate the containers with labels added.